What does the Brexit referendum mean for EU and UK competition law

The United Kingdom Brexit referendum should lead to the UK formally notifying the European Council of its intention to withdraw from the European Union in accordance with Article 50 of the Treaty on European Union.

This note provides a summary of the most important consequences for the framework of the competition laws and their application.

Firstly, one should note the procedural framework and its consequences: The outcome of the Brexit referendum vote is but a starting point for a withdrawal.

Only then will negotiations start and the withdrawal agreement should be concluded within two years.

Pending the agreement, EU law remains applicable. And the two year period is too short for the conclusion of a complex treaty with all 28 countries. EU law will therefore be with the UK for quite some time.

Secondly, even after the entry into force of the withdrawal agreement, EU competition law will be applied in parallel to UK law or on its own in a number of situations. The withdrawal may have a significant impact on State aid control, should the UK opt for a more limited control or abandon such control altogether. On "classic" antitrust cases, the withdrawal should have limited effects.

As regards merger control however, the loss of the EU's one-stop-shop and future parallel procedures will increase costs and scrutiny for companies.

Classic Antitrust situations

The Competition and Markets Authority (CMA) and the UK courts will no longer apply EU law and the case law of the European Court of Justice (and UK qualified lawyers will no longer be allowed to plead before the ECJ).

However, given that the substantive competition law of the EU and the UK are basically identical, for all practical purposes the UK exit will in the short term have a very limited impact.

Nevertheless, EU law will at all times continue to apply to non-EU companies who carry on business in Europe or whose business affect completion and trade in the EU. As a consequence, companies must respect EU and UK competition law at all times, and the number of cases with parallel investigations by both UK and EU authorities and parallel fining decisions will increase.

This situation can lead to higher costs and risks for businesses.

In other words, if a UK undertaking is a member of the cartel in the EU or its activities have an impact on trade in the EU, the European Commission has the power to conduct investigations and impose fines. The European Commission would however not be able to conduct dawn raids in the territory of the UK nor to instruct UK authorities to do so; but a future cooperation agreement could be concluded between the European Commission and the UK, along the same lines as such agreements exist with Japan and the USA.

In practice, companies will have to remain vigilant in order not to fall foul of competition law. In the future, they will face parallel proceedings with two different authorities, possibly diverging standards and two fining or remedy decisions.

With regard to follow-on damages actions for breach of competition law, the claimants will no longer use a UK forum for bringing an action, as the EU decisions will cease to have a binding effect on UK courts.

Merger control situations

With regard to mergers and acquisitions, it is already clear that the withdrawal of the UK from the EU will lead to more parallel investigations, with the EU's famous one-stop-shop advantage only applying to authorities in the EU. More concentrations will meet the thresholds of the EU Merger Regulation and the UK thresholds at the same time.

As is the case from time to time already now in multijurisdictional cases, parallel reviews can lead to one authority allowing and the other blocking a merger, or demanding different concessions from the parties to the transaction.

This situation will add a burden and a cost for companies.

The UK authorities demand a fee for their authorisation, just like the Bundeskartellamt, but starting at a much higher level.

The UK procedure has also a different, potentially longer timeframe compared to the merger control operated by the European Commission

State aid control

The EU would have no jurisdiction on unlawful State aid given by UK public authorities, but equally the UK would not have any legal remedy against unlawful State aids in other EU Member States, other than the basic protection under GATT rules.

The UK would have to decide whether to replace them with a domestic system of State aid control or simply do nothing. Some have argued that in the latter case the UK could regain a degree of economic sovereignty, but this flies in the face of current tendencies to "multilateralise" State aid control and to rein in public spending. Even domestically, there is no common opinion across the political landscape on State aid, as the case of the steel plant in Wales has shown.

Public procurement rules

Finally, the UK would have to enact its own public procurement rules, possibly different from EU rules. One should note however that these rules are a welcome check on spending by public authorities and that moreover some of them are based on WTO agreements (to which the UK would possibly wish to adhere).

The multilateral agreements contain lower thresholds than the EU rules, but again the UK governments have always argued for increasing these thresholds.

Therefore, it would be disingenuous to argue now for lower threshold and from an economic point of view not sensible to depart from EU thresholds.

For further information please contact: Dr. Rainer M. Bierwagen